boogieshoes (![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png)
boogieshoes) wrote2011-02-23 06:00 pm
boogieshoes) wrote2011-02-23 06:00 pm
a ramble on personal finances
So a friend of mine was talking this last weekend about how her and her husband are going to take some classes on how to handle finances. She said most of this was going to be common sense items that no one really took the time to explain because 'everybody knows it'. And as we all know - no, not everybody *does* know it, and to demonstrate that, a third lady who was listening to us allowed as how she should be better at finances, too, a said specifically, 'I know the first thing I should do when I get money is invest it, but I never get around to it!'
To which I replied, 'Actually, you need to save it; if you invest it, you risk losing it. Save first, *then* invest.'
And my first friend said, 'See, you could totally teach a class on this!'
So... here's my class on personal financials. There are three parts: 1) the practical rules; 2) the philosophy behind it all; and 3) Maslow's Heierarchy of Needs, as modified by yours truly.
Party of the First Part: the practical rules.
These are the things I think all people need to do to the best that they are able.
1) Take in more than you spend, even if all you're spending money on is basic necessities.
2) Don't live paycheck to paycheck if you can help it. You can't afford this, it's risky and if you lose your job, you lose everything.
3) Save. Have a number in mind for emergencies, then save until you get there. Then save for at least 3 months of bills on top of that.
4) Give to charity, but remember you're giving out of your net income, not your gross income. You're never as well-off financially as you think. Give accordingly, and look for the most bang for your charitable buck.
5) Pay off credit cards and loans as aggressively as you can. But bear in mind that this step comes *after* you save up for emergencies and 3 months of bills.
6) When you've paid off credit cards and loans, invest. Don't touch the emergency stash when you do this, because an investment is a risk. Even in the lowest-risk investments, you risk losing everything you put in under certain conditions.
7) Don't marry into financial problems. If your potential mate can't afford his/her own bills, neither can you.
7a) When you do take a spouse, maintain some degree of separation between finances. My parents have 3 checking accounts: His, Hers, and Theirs. As unromantic as it is, it's a lot easier to function in everyday life if you've got your own money. For women, specifically, it's a lot riskier to only have joint accounts, because in most states, *he's* the one who's got the ultimate legal authority over those accounts - even if *she's* the primary bread winner.
7b) If your potential mate insists on only joint checking accounts, this is red light issue, and *should* make you feel uncomfortable. It may be perfectly innocent, but this insistence is also a good way to isolate you from your resources, and a good way to make you totally dependent on him/her. The next step is isolation from friends, family, and then starting in on the abuse. Does this sound paranoid? Probably. It's also an accurate description of what happens in domestic abuse cases - for your own safety, you can't afford to *not* consider this reasoning.
8) Don't buy a yacht when you're financially unstable. A yacht in this case is a metaphor based on the tongue in cheek definition of the boat being 'a hole in the water you pour money into'. Yachts never solve problems, only add to them - so the only time you can afford to buy one is a) you're financially stable for the long-term foreseeable future and b) all you expect out of it is emotional satisfaction. There are a lot of yachts out there, including pets and kids. I'm not saying not to get pets or not to have kids, but to understand that animals and kids add to the stress of an unstable situation - they won't solve it.
9) Look to the future. Whether you're being optimistic or pessimistic, understand that there will come a time in your life when you don't want to or can't work, for whatever reason. Plan for it. Be the ant, not the grasshopper.
10) Hold on to your dreams. They may sound frivolous, but they will also give you inspiration for tightening your belt now, for planning for retirement, for the work you want to do, etc. All of that will make it easier to be conservative with your money.
Boogie's Financial Philosophy:
1) Remember that money is the ultimate cold equation. Your creditors won't be sympathetic, and therefore, you can't afford to be emotional when dealing with money. You certainly cannot afford pride when you're starving, and you can't afford to let your inner 5 year old dictate how you spend.
2) We live in a consumer economy. Everything costs money, including the time you sit around on the couch doing nothing. Frame everything you do in terms of money in vs money out tradeoffs, because that's ultimately what it comes down to. The time you spend walking in the park could also be spent making money that could be used to pay your bills. It sounds horribly cold, but this is an excercise you have to do from time to time to see where you are.
3) In all cases, at all times, if at all possible, make more money than you spend, even if what you're spending it on is basic food, medicine, shelter. Not everyone can do this, and most people can't do it all the time, especially if they're right out of college or in marignal industries where their jobs are the first thing to be cut if the economy tanks. But this rule should be your number one priority: *pay your own bills, and be independent*.
There's a number of reasons to maintain rule #3, but the primary two are: a) sense of self-worth, and b) if you're independently paying your own way, you aren't obligated to anyone to do anything you don't want to do. If other people are paying your bills, especially your basic needs bills, they have a large degree of control over you via the fear they might take those funds and thus your ability to survive away. *No one* deserves to be under that kind of control - but the price of independence is responsibility, and it's not a price that can be reduced or eliminated.
4) An ounce of prevention is worth a pound of cure, every time. Pay your bills on time. If you can, pay off the credit cards and loans and etc ahead of time. Your credit score is dependent on this kind of thing, and that score is important if you'd like to buy a house or a car or need to take a big loan out.
This truism also applies to your overall health, specific medical needs, and just about everything else. As much as possible, get and stay healthy; get and stay with the right medications for you; make sure your house or apartment and/or car is well-maintained and functional. These things may not seem like *financial* goals - but it's far, *far* more expensive to replace a transmission, tear up a house to correct problems caused by a leak, or ghu forbid, try to replace a broken spine because you weren't wearing your seatbelt in a car crash.
5) On the flip side of #2 - sometimes s$$t happens. Plan for it, and save up for emergencies. I have a friend who likes to keep $10k in liquid assets in case she loses her job. My own 'safety pad' is a bit less, but I'm also saving up for a house, which will increase cash flow should I get what I want.
6) Make sure you're in a stable spot financially before you help others. If you can't keep up with your own bills, you have no business trying to pay someone else's. Beware of 'friends' who keep coming back wanting money without paying you back. You can't afford this kind of leaching from your own pot, no matter how much money you have to begin with. There is nothing and no one worth your own financial stability, no matter how cold that may seem to you. If you have trouble with this, make a personal rule about how much money you'll spend to help people or how many times they get a chance at the pot - and stick to it. Make yourself report to someone else if that helps.
7) Make room for entertainment, but make sure the entertainment is commensurate with your income. You shouldn't have to be stressed about your finances, but even if you are - especially if you are - take a break from it. Go to the park, see a movie, hang with friends. My favorite low-cost solution to stress last fall while I was seeking a job was to go to a friend's house, because they had two lab mixes who were both attention sluts. It was a great way to get some therapy, some connecting with friends, and some doggie-snuggles, without paying anything.
8) Give to charity. Whether it's your church, or your social group that keeps you sane, or the kids next door who need blankets and clothes, see what you can do. It doesn't have to be expensive. It *shouldn't* take more than 30% of your income, and the traditional church 'tithe' (10%) is a better number, if only because more tends to cause stress on yourself. Remember the less money you make in absolute terms, the less actual money you can afford to see going out the door.
9) And after all that, stop worrying about money and live your life. Set up a plan on how you divide or spend your money, stick to it - and then forget about it. This step isn't always easy to do, especially if you need a job, or meds, or can barely make ends meet, or were in a tragic bus crash and now have to figure out how to pay your $30mil beyond insurance hospital bill. But life isn't about money - it's about doing the best you can with what you've got and being the best person you can be. Try not to forget that.
The Heierarchy of Needs:
I broadly categorize human needs into 3 Teirs, as follows.
Teir 1 includes covering the most basic needs of all: getting enough calories to survive, clothing yourself appropriately for the weather, and having shelter. This is the absolute minimum you need, presuming you're relatively healthy.
Many people, myself included, make sure to add 'necessary medicines' to this category, and that's not a bad idea. The real question is, what constitutes 'necessary'? As an example, I take an anti-depressant, 2 anti-cholesterol meds, and 1 high blood pressure medication. I'm currently taking all of those in generic form, and happy to do so, since it saves me $$. (I'm not hurting financially, either, but every little bit helps.) At any rate, of all those medications, the one I consider 'most necessary' is the anti-depressant. That's the medication whose benefit I see the most - the difference between on and off the anti-d is literally the difference between night and day for me. Literally the difference between living and dying.
Everyone who takes medication will have to evaluate their own needs and determine which medications they'd be willing to 'lose' in an emergency, and which they'd rather have in their cabinet than food in their bellies or a roof to sleep under. Basically, take the absolute worst situation you can foresee yourself being in, and decide which medication you want or need the most in that scenario. If you have multiple meds absolutely necessary for functioning, it's going to be a hard, hard decision, but it's one you have to make.
In any event, try to stock up on your most necessary meds a little bit. Even if you're a millionaire with no foreseeable disaster in sight, you never know when you'll need to bridge the gap between an old perscription and getting a new one - especially if you change insurance, doctors, etc. 3 months of backup is usually recommended.
So the basic summary of Teir 1 needs is: These are things you can't afford to be picky about when you're starving. There's no such thing as pride when you're hungry and have nothing to eat.
Teir 2 needs are 'basic functioning in the wider society' needs. Things that make your life a little easier, or maybe a little safer, and should be acquired if you have the money to pay for them, and should be the last to be let go if you lose your job. These needs are things like: a land line or cell phone (but not the fancy stuff; just something to get in contact with other people with); all the medications you require to be healthy; enough furniture so you're not eating or sleeping on the floor; healthy foods, which cost more than the food-stamp level stuff, unfortunately; reliable transportation to and from work that's more than your feet; access to the news and job ads.
Most people would consider this 'minimum' level stuff, and at the lowest end of the range, they're right. Teirs 1,2, and 3 blend together in a continuum, and there's no specific monetary or hard point to really point at and say 'yup, you're Teir X, do Y'. It's all individual, and depends on individual situation, but remember that cave-men lived without medication, phones, pillow-top mattresses, etc - you can too. You'll hate it like the dickens, and life will be shorter and harder, but you can do it.
The primary indicator that you're sliding out of Teir 1 needs and into Teir 2 needs is that you start buying stuff that's better, but you could do without. Like, it's conceivable to live on cereal and milk if that's all you can afford, but now you're buying fresh fruits and vegetables, more dishes and the occasional pint of ice cream. Basically, the 'upper end' of Teir 1 needs are your absolute minimal bills every month. Your goal should be *never* to fall below that level.
Your *preferred* goal should be never to fall below mid-level Teir 2 needs. Mid-level on Teir 2 is the place where you really start feeling the pinch of low income if you fall below it. At this point, most people in my social group have a decent-sized apartment or own/rent a house, have cable, some kind of gaming console, go to bars/ concerts/ social events at least once a month, own pets, etc.
Many of them also have a child or three. Now take note of this, because here's where things start getting sticky: if you have a child, *your* needs are no longer priority number one - *their* needs are. Not just their physical needs, but their emotional needs, too. Most parents know and understand this, but if you are considering having or adopting a child understand that your 'minimum level of money necessary to live on' just grew by about 2.5x. Even people who think they're ready for how much money a child takes are frequently surprised by what they end up spending.
If you're in a position of uncertainty, don't have a kid. Just don't. I don't care what the logic is, having a kid in a financially and emotionally unstable state is not the answer to anything.
Likewise, if you're considering rooming with someone and their child, understand that you are agreeing to take on responsibility, to some degree, for that kid. It may be 'making sure he doesn't drown in the tub if I'm the only one around', but still, the kid's needs come first. The most infuriating thing to happen to me recently was a friend who was in this situation who fell behind on his bills to the point where he almost lost the house he was renting - the same house the child of his roommate depended on being there every other week when she stayed with her mother. He needed money far beyond my usual limit of 'helping', but I covered him anyway, because I felt it was important that the child in question not be put in a position of potentially losing her home and belongings. I'm not sure my friend understood this, and his financial issues were largely his own fault - but the kid doesn't deserve to be punished for his bad decisions, and neither do any kids *you* might interact with.
The high end of Teir 2 needs tops out at buying things like high-end golf clubs, a yacht, 2600 acres of land when it's not your family business, jetting off to Europe for vacation every summer, etc, etc. These are things you could do without and not only would it not impinge on your happiness, not buying them means you're making a choice between instant gratification and saving for your Teir 3 needs.
Teir 3 needs are 'pursuit of happiness needs'. Everyone has dreams; keep them. This is the pie in the sky stuff that makes you happy to think about, dream about, plan for. The low end of this Teir 'starts' somewhere around 3/4 of the high end of Teir 2, in part because everyone has a different dream or goal to pursue, and in part because the primary differences between Teir 3 'needs' and Teir 2 'needs' is the level of effort needed to acquire and maintain them. It's fairly 'easy' in terms of input effort to buy a quality set of golf clubs - it takes a lot more to play the St Andrews golf course every afternoon. In fact, for most of us, it's not practical to play St Andrews for one day, let alone every day, so maybe you'll take your high-end golf clubs and play at the local country club every day instead, or get sneaky and by a Wii console and a golf game and practice on the dog-leg at the 5th hole on St Andrews' course without ever leaving your living room.
Or you could be like my Dad, who complains about not having time to golf, and then goes down to the basement with his grandsons to paint birdhouses in his carpentry shop.
The point is, the Teir 3 needs are the stretch goals. It doesn't have to be having a bunch a ton of money, but it should be a financial reach to get there, as well as involve personal growth. Now, some people think stretch goals are ultimately frivolous. I don't, because if you're in any way serious about your stretch goals, you'll put in the time and planning you need to get there. and that time and planning will help you manage your money in general. This is time and planning that goes into how much you save, how you intend to manage your retirement, how you intend to live in a few years, etc, etc. You need to keep these goals in mind, because it's beneficial to take a long-term view, both pessimisstically, and optimistically.
When you're being pessimistic, you're saving for a rainy day. When you're being optimistic, you're planning for how to get to the point you can live the good life you want.
The trick with Teir 3 goals is not to beat yourself up about not making them. Plan for them, save for them, but if disaster strikes and you're forced to use your savings to get yourself out of a jam, then be happy to have had those savings to use. And remember, you can always start saving again for those goals.
And that's Boogie's class on personal finances. It has much less to do with actual amount of money and much more to do with how you view money in general.
To which I replied, 'Actually, you need to save it; if you invest it, you risk losing it. Save first, *then* invest.'
And my first friend said, 'See, you could totally teach a class on this!'
So... here's my class on personal financials. There are three parts: 1) the practical rules; 2) the philosophy behind it all; and 3) Maslow's Heierarchy of Needs, as modified by yours truly.
Party of the First Part: the practical rules.
These are the things I think all people need to do to the best that they are able.
1) Take in more than you spend, even if all you're spending money on is basic necessities.
2) Don't live paycheck to paycheck if you can help it. You can't afford this, it's risky and if you lose your job, you lose everything.
3) Save. Have a number in mind for emergencies, then save until you get there. Then save for at least 3 months of bills on top of that.
4) Give to charity, but remember you're giving out of your net income, not your gross income. You're never as well-off financially as you think. Give accordingly, and look for the most bang for your charitable buck.
5) Pay off credit cards and loans as aggressively as you can. But bear in mind that this step comes *after* you save up for emergencies and 3 months of bills.
6) When you've paid off credit cards and loans, invest. Don't touch the emergency stash when you do this, because an investment is a risk. Even in the lowest-risk investments, you risk losing everything you put in under certain conditions.
7) Don't marry into financial problems. If your potential mate can't afford his/her own bills, neither can you.
7a) When you do take a spouse, maintain some degree of separation between finances. My parents have 3 checking accounts: His, Hers, and Theirs. As unromantic as it is, it's a lot easier to function in everyday life if you've got your own money. For women, specifically, it's a lot riskier to only have joint accounts, because in most states, *he's* the one who's got the ultimate legal authority over those accounts - even if *she's* the primary bread winner.
7b) If your potential mate insists on only joint checking accounts, this is red light issue, and *should* make you feel uncomfortable. It may be perfectly innocent, but this insistence is also a good way to isolate you from your resources, and a good way to make you totally dependent on him/her. The next step is isolation from friends, family, and then starting in on the abuse. Does this sound paranoid? Probably. It's also an accurate description of what happens in domestic abuse cases - for your own safety, you can't afford to *not* consider this reasoning.
8) Don't buy a yacht when you're financially unstable. A yacht in this case is a metaphor based on the tongue in cheek definition of the boat being 'a hole in the water you pour money into'. Yachts never solve problems, only add to them - so the only time you can afford to buy one is a) you're financially stable for the long-term foreseeable future and b) all you expect out of it is emotional satisfaction. There are a lot of yachts out there, including pets and kids. I'm not saying not to get pets or not to have kids, but to understand that animals and kids add to the stress of an unstable situation - they won't solve it.
9) Look to the future. Whether you're being optimistic or pessimistic, understand that there will come a time in your life when you don't want to or can't work, for whatever reason. Plan for it. Be the ant, not the grasshopper.
10) Hold on to your dreams. They may sound frivolous, but they will also give you inspiration for tightening your belt now, for planning for retirement, for the work you want to do, etc. All of that will make it easier to be conservative with your money.
Boogie's Financial Philosophy:
1) Remember that money is the ultimate cold equation. Your creditors won't be sympathetic, and therefore, you can't afford to be emotional when dealing with money. You certainly cannot afford pride when you're starving, and you can't afford to let your inner 5 year old dictate how you spend.
2) We live in a consumer economy. Everything costs money, including the time you sit around on the couch doing nothing. Frame everything you do in terms of money in vs money out tradeoffs, because that's ultimately what it comes down to. The time you spend walking in the park could also be spent making money that could be used to pay your bills. It sounds horribly cold, but this is an excercise you have to do from time to time to see where you are.
3) In all cases, at all times, if at all possible, make more money than you spend, even if what you're spending it on is basic food, medicine, shelter. Not everyone can do this, and most people can't do it all the time, especially if they're right out of college or in marignal industries where their jobs are the first thing to be cut if the economy tanks. But this rule should be your number one priority: *pay your own bills, and be independent*.
There's a number of reasons to maintain rule #3, but the primary two are: a) sense of self-worth, and b) if you're independently paying your own way, you aren't obligated to anyone to do anything you don't want to do. If other people are paying your bills, especially your basic needs bills, they have a large degree of control over you via the fear they might take those funds and thus your ability to survive away. *No one* deserves to be under that kind of control - but the price of independence is responsibility, and it's not a price that can be reduced or eliminated.
4) An ounce of prevention is worth a pound of cure, every time. Pay your bills on time. If you can, pay off the credit cards and loans and etc ahead of time. Your credit score is dependent on this kind of thing, and that score is important if you'd like to buy a house or a car or need to take a big loan out.
This truism also applies to your overall health, specific medical needs, and just about everything else. As much as possible, get and stay healthy; get and stay with the right medications for you; make sure your house or apartment and/or car is well-maintained and functional. These things may not seem like *financial* goals - but it's far, *far* more expensive to replace a transmission, tear up a house to correct problems caused by a leak, or ghu forbid, try to replace a broken spine because you weren't wearing your seatbelt in a car crash.
5) On the flip side of #2 - sometimes s$$t happens. Plan for it, and save up for emergencies. I have a friend who likes to keep $10k in liquid assets in case she loses her job. My own 'safety pad' is a bit less, but I'm also saving up for a house, which will increase cash flow should I get what I want.
6) Make sure you're in a stable spot financially before you help others. If you can't keep up with your own bills, you have no business trying to pay someone else's. Beware of 'friends' who keep coming back wanting money without paying you back. You can't afford this kind of leaching from your own pot, no matter how much money you have to begin with. There is nothing and no one worth your own financial stability, no matter how cold that may seem to you. If you have trouble with this, make a personal rule about how much money you'll spend to help people or how many times they get a chance at the pot - and stick to it. Make yourself report to someone else if that helps.
7) Make room for entertainment, but make sure the entertainment is commensurate with your income. You shouldn't have to be stressed about your finances, but even if you are - especially if you are - take a break from it. Go to the park, see a movie, hang with friends. My favorite low-cost solution to stress last fall while I was seeking a job was to go to a friend's house, because they had two lab mixes who were both attention sluts. It was a great way to get some therapy, some connecting with friends, and some doggie-snuggles, without paying anything.
8) Give to charity. Whether it's your church, or your social group that keeps you sane, or the kids next door who need blankets and clothes, see what you can do. It doesn't have to be expensive. It *shouldn't* take more than 30% of your income, and the traditional church 'tithe' (10%) is a better number, if only because more tends to cause stress on yourself. Remember the less money you make in absolute terms, the less actual money you can afford to see going out the door.
9) And after all that, stop worrying about money and live your life. Set up a plan on how you divide or spend your money, stick to it - and then forget about it. This step isn't always easy to do, especially if you need a job, or meds, or can barely make ends meet, or were in a tragic bus crash and now have to figure out how to pay your $30mil beyond insurance hospital bill. But life isn't about money - it's about doing the best you can with what you've got and being the best person you can be. Try not to forget that.
The Heierarchy of Needs:
I broadly categorize human needs into 3 Teirs, as follows.
Teir 1 includes covering the most basic needs of all: getting enough calories to survive, clothing yourself appropriately for the weather, and having shelter. This is the absolute minimum you need, presuming you're relatively healthy.
Many people, myself included, make sure to add 'necessary medicines' to this category, and that's not a bad idea. The real question is, what constitutes 'necessary'? As an example, I take an anti-depressant, 2 anti-cholesterol meds, and 1 high blood pressure medication. I'm currently taking all of those in generic form, and happy to do so, since it saves me $$. (I'm not hurting financially, either, but every little bit helps.) At any rate, of all those medications, the one I consider 'most necessary' is the anti-depressant. That's the medication whose benefit I see the most - the difference between on and off the anti-d is literally the difference between night and day for me. Literally the difference between living and dying.
Everyone who takes medication will have to evaluate their own needs and determine which medications they'd be willing to 'lose' in an emergency, and which they'd rather have in their cabinet than food in their bellies or a roof to sleep under. Basically, take the absolute worst situation you can foresee yourself being in, and decide which medication you want or need the most in that scenario. If you have multiple meds absolutely necessary for functioning, it's going to be a hard, hard decision, but it's one you have to make.
In any event, try to stock up on your most necessary meds a little bit. Even if you're a millionaire with no foreseeable disaster in sight, you never know when you'll need to bridge the gap between an old perscription and getting a new one - especially if you change insurance, doctors, etc. 3 months of backup is usually recommended.
So the basic summary of Teir 1 needs is: These are things you can't afford to be picky about when you're starving. There's no such thing as pride when you're hungry and have nothing to eat.
Teir 2 needs are 'basic functioning in the wider society' needs. Things that make your life a little easier, or maybe a little safer, and should be acquired if you have the money to pay for them, and should be the last to be let go if you lose your job. These needs are things like: a land line or cell phone (but not the fancy stuff; just something to get in contact with other people with); all the medications you require to be healthy; enough furniture so you're not eating or sleeping on the floor; healthy foods, which cost more than the food-stamp level stuff, unfortunately; reliable transportation to and from work that's more than your feet; access to the news and job ads.
Most people would consider this 'minimum' level stuff, and at the lowest end of the range, they're right. Teirs 1,2, and 3 blend together in a continuum, and there's no specific monetary or hard point to really point at and say 'yup, you're Teir X, do Y'. It's all individual, and depends on individual situation, but remember that cave-men lived without medication, phones, pillow-top mattresses, etc - you can too. You'll hate it like the dickens, and life will be shorter and harder, but you can do it.
The primary indicator that you're sliding out of Teir 1 needs and into Teir 2 needs is that you start buying stuff that's better, but you could do without. Like, it's conceivable to live on cereal and milk if that's all you can afford, but now you're buying fresh fruits and vegetables, more dishes and the occasional pint of ice cream. Basically, the 'upper end' of Teir 1 needs are your absolute minimal bills every month. Your goal should be *never* to fall below that level.
Your *preferred* goal should be never to fall below mid-level Teir 2 needs. Mid-level on Teir 2 is the place where you really start feeling the pinch of low income if you fall below it. At this point, most people in my social group have a decent-sized apartment or own/rent a house, have cable, some kind of gaming console, go to bars/ concerts/ social events at least once a month, own pets, etc.
Many of them also have a child or three. Now take note of this, because here's where things start getting sticky: if you have a child, *your* needs are no longer priority number one - *their* needs are. Not just their physical needs, but their emotional needs, too. Most parents know and understand this, but if you are considering having or adopting a child understand that your 'minimum level of money necessary to live on' just grew by about 2.5x. Even people who think they're ready for how much money a child takes are frequently surprised by what they end up spending.
If you're in a position of uncertainty, don't have a kid. Just don't. I don't care what the logic is, having a kid in a financially and emotionally unstable state is not the answer to anything.
Likewise, if you're considering rooming with someone and their child, understand that you are agreeing to take on responsibility, to some degree, for that kid. It may be 'making sure he doesn't drown in the tub if I'm the only one around', but still, the kid's needs come first. The most infuriating thing to happen to me recently was a friend who was in this situation who fell behind on his bills to the point where he almost lost the house he was renting - the same house the child of his roommate depended on being there every other week when she stayed with her mother. He needed money far beyond my usual limit of 'helping', but I covered him anyway, because I felt it was important that the child in question not be put in a position of potentially losing her home and belongings. I'm not sure my friend understood this, and his financial issues were largely his own fault - but the kid doesn't deserve to be punished for his bad decisions, and neither do any kids *you* might interact with.
The high end of Teir 2 needs tops out at buying things like high-end golf clubs, a yacht, 2600 acres of land when it's not your family business, jetting off to Europe for vacation every summer, etc, etc. These are things you could do without and not only would it not impinge on your happiness, not buying them means you're making a choice between instant gratification and saving for your Teir 3 needs.
Teir 3 needs are 'pursuit of happiness needs'. Everyone has dreams; keep them. This is the pie in the sky stuff that makes you happy to think about, dream about, plan for. The low end of this Teir 'starts' somewhere around 3/4 of the high end of Teir 2, in part because everyone has a different dream or goal to pursue, and in part because the primary differences between Teir 3 'needs' and Teir 2 'needs' is the level of effort needed to acquire and maintain them. It's fairly 'easy' in terms of input effort to buy a quality set of golf clubs - it takes a lot more to play the St Andrews golf course every afternoon. In fact, for most of us, it's not practical to play St Andrews for one day, let alone every day, so maybe you'll take your high-end golf clubs and play at the local country club every day instead, or get sneaky and by a Wii console and a golf game and practice on the dog-leg at the 5th hole on St Andrews' course without ever leaving your living room.
Or you could be like my Dad, who complains about not having time to golf, and then goes down to the basement with his grandsons to paint birdhouses in his carpentry shop.
The point is, the Teir 3 needs are the stretch goals. It doesn't have to be having a bunch a ton of money, but it should be a financial reach to get there, as well as involve personal growth. Now, some people think stretch goals are ultimately frivolous. I don't, because if you're in any way serious about your stretch goals, you'll put in the time and planning you need to get there. and that time and planning will help you manage your money in general. This is time and planning that goes into how much you save, how you intend to manage your retirement, how you intend to live in a few years, etc, etc. You need to keep these goals in mind, because it's beneficial to take a long-term view, both pessimisstically, and optimistically.
When you're being pessimistic, you're saving for a rainy day. When you're being optimistic, you're planning for how to get to the point you can live the good life you want.
The trick with Teir 3 goals is not to beat yourself up about not making them. Plan for them, save for them, but if disaster strikes and you're forced to use your savings to get yourself out of a jam, then be happy to have had those savings to use. And remember, you can always start saving again for those goals.
And that's Boogie's class on personal finances. It has much less to do with actual amount of money and much more to do with how you view money in general.